Several media reports say that Toys “R” Us, the toy retailer founded in the late 1950s, may seek Chapter 11 protection. If so, thousands of jobs are at stake as another major retailer succumbs to e-commerce and direct competition from larger store chains.
In the quarter that ended April 29, Toys “R” Us had revenue of $679 million, small among large retailers. It lost $33 million. However, the current portion of its long-term debt due immediately was $92 million. Overall long-term debt was $1.85 billion. Toys “R” Us is buried in financial commitments it cannot hope to decrease by any substantial margin.
Toys “R” Us has 82 stores in the United States and Canada, 343 in Europe, 59 in the Middle East and 428 in Asia. The company has 70,000 workers worldwide. It is unclear how many will be laid off in a bankruptcy or whether the number could be small. However, traditionally, retailers that move into Chapter 11 shutter stores and fire workers. These actions have even been taken by retailers with strong balance sheets but plunging sales.
Toys “R” Us certainly has been harmed by Amazon.com Inc. (NASDAQ: AMZN). However, as much damage may have been done by Wal-Mart Stores Inc. (NYSE: WMT), the largest retailer in the United States, which recently set special toy promotions for the holidays. Many of the toys will be available at Walmart exclusively.
Ironically, the holiday season, always the best quarter for retailers, is just around the corner. That quarter can account for nearly half of a major retailer’s sales and all of its profits. If Toys “R” Us files for Chapter 11 now, it will show just how desperate its financial fortunes have become.